An employer's guide to employment contracts

Basic terms/Section 1 Statements 

Employers are obliged to provide employees whose employment is to continue for one month or more with a written statement of certain terms of their employment. This is commonly referred to as a Section 1 Statement.

On 6 April 2020 changes were introduced to the information to be provided in a Section 1 Statement and these are addressed below.

These changes apply to employees and workers who commenced work on or after 6 April 2020 and there is no minimum service requirement before the employee or worker is entitled to the statement.

Prior to 6 April 2020 the statement had to be given no later than two months from the commencement of employment. However, the majority of the particulars now need to be given before the job begins, or on the first day of employment. 

The information to be provided by an employer is detailed below. In sections where there are no relevant details to give i.e. the contract is not of a fixed term duration, this should be stated.

1. The names of the employer and employee;
2. The date employment commenced;
3. The date the employee’s period of continuous employment began; From 6 April 2020, if there is to be a probationary period, the conditions and duration of the probationary period need to be stated.
4. If the employment is not expected to be permanent, the duration it is expected to last;
5. If the employment is for a fixed term, the start and end dates;
6. The employee’s job title and a brief description of work to be undertaken;
7. The method of calculating pay or the scale or rate at which the employee is paid; From 6 April 2020 any other pay or benefits that the employer provides must also be detailed.
8. Pay intervals i.e. weekly, monthly etc;
9. Terms and conditions relating to hours of work. If a shift system or flexitime is in operation then this should be stated. Details of overtime arrangements should also be provided; From 6 April 2020 the information provided needs to state the days of the week the employee/worker is required to work, whether the working day or hours are variable and if they are, details of how they may vary.
10. The employee’s place of work. If the employee is to work at other sites then this should be detailed and the employer’s address provided;
11. Any terms and conditions relating to holidays, including public holidays and, holiday pay. The details must be sufficient to enable calculation of entitlement; From 6 April 2020, the statement must also include information about any entitlement to paid leave including maternity leave and paternity leave.
12. Terms and conditions in relation to incapacity from work and sick pay schemes;
13. Any collective agreements in operation that directly effect the terms and conditions of employment. This requires the detailing of the agreement in place, the title, its subject matter and the date it became effective.
14. If the employee is required to work outside of the UK for more than one month:

• The period for which he or she is to work outside of the UK;
• The currency the employee will be paid when working outside of the UK;
• Any additional remuneration payable or, benefits to be provided in respect of the employee, due to them being required to work outside of the UK; and
• Terms and conditions relating to the employee’s return to the UK. 
• The length of notice the employee is obliged to give and entitled to receive to terminate his or her contract.

15.  From 6 April 2020, if there is any training provided by the employer which the employee/worker is required to  complete, information must be provided about this. Details must also be provided about any other training which is required, but which the employer will not pay for. 

The information must also include a note on the following:

• Terms and conditions relating to pensions and pension schemes; including a statement as to whether a contracting out certificate under the Pensions Schemes Act 1993 is in force.  From 6 April 2020, terms as to pensions and pension schemes must be given up to 2 months after the beginning of employment. 
• Any disciplinary rules applicable to the employee and reference to procedures relating to discipline or dismissal. This may include any other procedures providing for dismissal.
• To whom the employee can appeal if dissatisfied with a decision to discipline or dismiss them. The person nominated to receive appeals should be identified by name or, job title. The fashion in which an appeal may be made should be detailed together with information on further actions that emanate from the appeal.
• The person to whom the employee can lodge a grievance relating to his or her employment, identified by name, job title etc.
• The method in which the grievance should be lodged i.e. by letter, together with further actions that emanate from the application. If the company has a bullying and harassment procedure reference should be made to this.
• The disciplinary and grievance procedure should be compliant with the ACAS code on discipline and grievance.

The information can be given in a statement, contract or, letter. However, the legislation does detail the format in which certain information has to be provided. The following details are to be included in one single document:

• Names of employer and employee;
• Date employment and continuous employment began;
• Pay and pay dates;
• Hours of work and holidays;
• Job title and or description; and
• Place of work.
• The days of the week the employee is required to work, whether the working hours are variable and if so, how the variation will be decided
• Any paid leave to which the worker is entitled
• Details of all pay and benefits
• Any probationary period
• Any training entitlement provided by the employer, whether the training is mandatory and whether the training must be paid for by the worker.

The requirement for a single document can be met by attaching separate documents together. 

If the employer fails to provide the required information there is no stand alone remedy. A tribunal can however rule on what information should have been in the statement should the employee (Claimant) apply to the employment tribunal on grounds that a written statement of main terms and conditions has not been provided. If the employee is not provided with a statement and is successful in some other claim to the tribunal such as unfair dismissal, the tribunal may award two to four weeks pay to the employee for the employer’s failure to provide the statement. The level of the award will depend on the extent of the employers failure to comply with section one.

Express and implied terms

Any contract consists of both express and implied terms. Express terms are those written into the contract, whereas implied terms may be incorporated by law or custom and practice.

It is important that the contract is written bearing in mind the requirements of the business and the employee’s role. We would advise that you speak to your HR Rely adviser if you have a particular circumstance or business need to be addressed.

Using express terms

There may be certain clauses that an organisation believes are important to include in the contract, taking into account the nature of the work done (for example a right to require an employee to undertake a medical examination if the role requires physical fitness; the right to search the employee’s property if they handle items of value; or a requirement that the employee work overtime, where production needs require this. These should be expressly stated.

Should a company wish certain benefits (e.g. bonuses) to be offered at its discretion, and not contractually guaranteed, then this should be clearly stated in the contract. Care needs to be taken both to ensure that appropriate wording is used but also, but also in the application of the benefit/right to ensure that it is truly discretionary. (It is to be noted that statutory rights can not be made discretionary.)

When drafting express terms, there are a number of limitations, detailed as follows:

• The terms should not afford less than is provided by statute.
• Care needs to be taken to ensure that the terms do not indirectly discriminate on grounds of a “protected characteristic” see the Indirect Discrimination Section of our Equality and Diversity Guide. An example of indirect discrimination could be a requirement for all workers not to take holiday in the months of October or November, which could disproportionately affect certain employees on grounds of religion or religious belief.
• A clause should not be used in such a way as to breach the implied term of trust and confidence i.e. the use of an express term to require an employee to work excessive hours.

What express terms should the contract include? 

There are certain matters that an employer usually wants to expressly deal with in the contract of employment. These are as follows:

Job details and location

The contract should include the job title. It is not necessary to include the duties and responsibilities but it is recommended that a job description is issued in order for the employee’s performance to be effectively managed.

Whether the job description is incorporated into the contract or simply referred to, it is advisable that it is written in a way that permits flexibility. The company may want the flexibility to require the employee to undertake other work or duties on either a temporary or permanent basis.

It is normal for a contract to state the employee's hours of work. This would normally include the days the employee is required to work, the hours that they may be expected to work and any breaks. An employer may wish to build in flexibility, being careful not to indirectly discriminate against any particular group. When considering working hours an employer should give thought to the effect start and finish times can have for those with domestic responsibilities (e.g. a 4.00am start time for a single parent could cause immense difficulty in terms of child care arrangements). An employer must also have regard to the Working Time Regulations 1998 which set out the limitations on working time; see our Guide on the Working Time Regulations.

It is to be expected that the contract will detail the place of work, but consideration should be given to the inclusion of a relocation/mobility clause if it is anticipated that it may be necessary for an employee to work at a different site. This will enable the employer to contractually require an employee to move to a different work place (subject to the implied term of trust and confidence) and might prevent an employee from claiming a redundancy payment should the business relocate and the employee elect not to move. Care needs to be exercised when using relocation clauses as they can be indirectly discriminatory e.g. against women due to their childcare commitments, and therefore should be capable of objective justification. If you are looking to include a relocation clause, we recommend that you take advice from your HR Rely adviser.

If a relocation clause is to be included in the contract it should detail the geographical area it is envisaged the employee may be required to move to or work within. 

Pay and deductions

The contract should include the starting salary and additional elements such as overtime pay, bonus etc. Any conditions that apply to such payments e.g. minimum number of hours to be worked before overtime premium is paid or targets to be achieved before the bonus is payable should be clearly set out.

If any deductions are to be or, may be taken from pay, e.g. repayment of outstanding training course fees upon termination, this should be set out in the contract. The circumstances under which deductions will take place should be detailed, so as to avoid potential complaints of unlawful deduction from wages.

Reducing Hours or Pay

If a company anticipates that it may on occasion need to lay employees off without pay (other than statutory guarantee pay), or to reduce their working hours with reduced pay, then it should include a clause in the contract allowing them  to do so. The right to lay off or to reduce working hours may be in an express clause or in a collective agreement that has been incorporated into the contract by reference. The clause may cover such occurrences as a factory fire, flooding, inclement weather, mechanical failure, shortage of work etc. Many companies exercised contractual lay-off clauses to respond to dramatically reduced demand during the COVID-19 pandemic. 

Although it can be argued that in certain industries there is an implied right to lay off i.e. in the building industry during the winter, it is always safer to expressly deal with such risks. Your HR Rely adviser can advise on the clauses to best cover your requirements.

Holidays

The contract should explain entitlement to holidays and how holiday pay is calculated. This is subject to the requirements of the Working Time Regulations 1998 which provides a minimum holiday entitlement, governs how holiday pay is to be calculated and, how holiday should be requested or, refused.

An organisation may wish to include its own terms on how and when holiday may be taken including annual shutdowns and restrictions on carrying forward holidays into the next leave year. Guidance might also be provided in instances where an employee falls ill during a holiday.

Medical Examination

The contract may also include a clause requiring the employee to undertake a medical with the company’s Occupational Health provider upon request. This may be useful if the need arises to manage an employee's attendance, performance or long term absence. 

Notice and 'payment in lieu'

The Employment Rights Act 1996 provides minimum periods of notice that the employer and employee must provide to each other to terminate the contract. It is however possible for the contract to provide greater notice than this but, either way, the contract should specify the notice the employer and employee must give to terminate the contract.

Should a company wish an employee to refrain from attending work during the notice period (ordinarily known as 'garden leave') then the contract should make provision for this.

Employers might also wish to include a ‘payment in lieu of notice' clause. This provides that instead of requiring the employee to work notice, a payment in lieu is made, representing the pay they would have received had they worked their notice period. This allows for the contract to be terminated immediately without the employer being in breach, ensuring that the company can still rely on any enforceable restrictive covenants in place (see below). 

Are any other documents contractual?

Not all express terms will necessarily be contained in the contract of employment but the employer may still want them to have contractual status. This can include any collective agreements with a Trade Union. Where this is the case, then the employer needs to make clear in the employee’s contract that the collective agreement forms part of the contract of employment.

Employers also need to give careful consideration to which policies, procedures or sections of the employee handbook it wishes to be contractual. It is not usually advisable to give contractual status to core operational policies such as disciplinary or grievance procedures. Claims for breach of contract could arise if an employer were to change its policies or procedures unilaterally or, fail to follow them. 

An employer may wish to amend certain agreements or documents. Such change can be achieved if the term incorporating the document permits amendments to be made. For example, a clause incorporating pensions could read:

‘You are entitled to the benefit of the company pension scheme, the current terms of which are set out in the booklet which has been issued to you. The rules and benefits of the scheme can be altered from time to time’.

Please also see our [guide to changing terms and conditions].

Where contracts are subject to collective agreements it is prudent to make clear that such agreements may from time to time be subject to change subject to negotiation with the relevant trades unions.

Implied terms and how they arise 

A key 'implied' term is that of 'trust and confidence'. An employee should not, during employment, disclose an employer’s confidential information or conduct themselves in such a manner that it is likely to cause harm to an employer’s business. Confidential information may amount to a trade secret and, if this is the case, then this implied non-disclosure term applies post termination. 

Some contractual obligations of employers and employees emanate from terms that are implied in the contract. Terms can be implied in order to:

• confirm established custom and practice; or,
• as a consequence of court rulings over the years.

If there is a dispute over issues potentially covered by implied terms, it is ultimately up to the courts to judge what these terms are. For this reason it is recommended that, where possible, express terms are used.

In some limited circumstances, terms can be implied into a contract as a matter of 'custom and practice'. For this to happen the term must be clearly known and understood in the workplace concerned or throughout the industry, and the parties must act in a way that suggests that they viewed themselves as being legally obliged to adhere to it. 

Despite common belief to the contrary, the passage of time does not necessarily grant or create implied terms. However to ensure this does not happen unintentionally, if employers give gifts or enhanced payments in redundancy situations or at Christmas and they do not intend such benefits to be deemed as contractual, then this should be clearly stated in any documentation issued.

Over the years, the civil courts have deemed some terms to be implied in all contracts of employment:

• Health and Safety
  The employer is obliged to take reasonable care for the health and safety of the employee. The employee is obliged to take care in his or her work and for his or her health and safety and that of colleagues.
• Trust and confidence
  The employer has a duty not to act in such a way as to destroy or seriously damage the trust and confidence between the employer and employee. Equally this applies to the employee.
• Loyal Service
  The employee is obliged to give loyal service to the employer and not to undertake competing activities nor to disclose confidential information to the detriment of his employer’s business.
• Co-operation
  The employee is obliged to follow reasonable and lawful instruction.
• Duty to pay
  The employer has a duty to pay the employee as long as the employee is ready and willing to work.

Post-termination contractual restrictions

Employers may wish to protect their business interests by including express clauses in the contract restricting what a former employee can do post-termination. Such clauses are known as 'restrictive covenants' or 'post-termination restrictions'.

Restrictive covenants can be used in contracts to provide the employer with the added reassurance that, post-employment, an employee will not, for example set up in competition, or poach a company’s customers or staff, to the detriment of their former employers’ business interests. In order to be enforceable, the covenants should not be overly restrictive. If a clause is overly restrictive it can be deemed void by the courts, as an individual must have the right to earn a living post-termination. It is recommended therefore that guidance is sought from the HR Rely team to make sure any restrictive covenants are reasonable and are tailored to your particular business needs.

Fixed term contracts

Fixed term contracts are for a limited duration and should state the start and end date. Employees on such contracts are protected by the Fixed–Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. Under the Regulations ‘fixed –term’ employees include not only those working under a fixed term contract but also those engaged under a specified purpose contract i.e. to complete a one-off task or project.

Under the Regulations, employers must not treat fixed–term employees less favourably than permanent employees by reason of their fixed term status, unless they can objectively justify doing so. Less favourable treatment of fixed term staff is justified only if such treatment is a necessary and appropriate way of achieving a genuine business objective.

The Regulations also limit the extent to which employers can use successive fixed term contracts. Employees who have had their contracts renewed, or are offered new fixed term contracts when they have been employed on a fixed term basis for four continuous years or more, will be treated as working under a permanent contract from the date the contract is renewed or the date the new contract is entered into. The rules can be amended or replaced by means of a collective agreement with a recognised trade union or, workforce agreement. For example, such an agreement might:

• Fix a maximum period for which an employee may be employed on a fixed-term basis. The period can be in excess of four years.
• Limit the number of fixed –term contracts or the number of times a fixed-term contract can be renewed.
• Detail objective grounds upon which the renewal of a fixed–term contract or usage of successive fixed-term contracts may be justified.

Casual worker contracts

It is sensible for a company to have in place a contract covering temporary/casual or, seasonal workers.

Download a specimen zero hours contract for a casual worker.